Re: Washington's Great "No Inflation" Hoax

On May 11, 2:51 pm, Rita <R...@xxxxxxxxxxx> wrote:
On Sun, 11 May 2008 13:27:42 -0700 (PDT), mg <mgkel...@xxxxxxxxx>
wrote:

It's not the Washington lies that surprise or disappoint me, it's the
news media's willingness to go along with it and a lot of other things
(like the WMD fairly tale for example) that's actually frightening.

On the inflation front, though, things have gotten so bad now, it
can't really be ignored any longer.

I heard a discussion on (of all places) Fox News with persons
from the WSJ and a couple other Republican media outlets.
The consensus was that what will be most on voters' minds will
be the high cost of gas and food. And medical care also. And
that promising tax cuts or tax breaks as McCain has been doing
will not cut it with these voters. The don't want relief down
the road somewhere, but they want it now. And that this would
be the major interest of voters in November.

One of them pointed out that in the UK where a conservative
government has been successful recently, it was because they
are not ideologically rigid about not catering to what the
voters want from government. More government help on home
ownership and other bread and butter issues, not the U.S,
Republican mantra that privatization of everything is always
best.

That ideological rigidity is so out of step with other
world democracies it is amazing the Republicans have been
able to last as long as they have. This panel said the
Republican brand is tarnished and no longer one the voters
will buy in its present condition.

You wouldn't know that if your only news source was soc.
retirement -- but it is a refrain I've read and heard more
and more frequently of late. And not just by Democrats
but by Republicans.

I wondered if Hannity and company heard and approved of these
views aired on the Fox network.

These sorts of discussion on Fox might be the first part of a program
to sell the idea that the Republican party has now seen the light
(hallelujah) and has been rehabilitated and John McCain will now lead
this new progressive Republican party into a shining new era of social
consciousness and economic reform for hard working Americans.




On May 11, 1:39 pm, Florida <demeter547op...@xxxxxxxxx> wrote:
http://www.huffingtonpost.com/kevin-phillips/washingtons-great-no-inf...
May 11, 2008

Kevin Phillips - Washington's Great "No Inflation" Hoax

Billionaire California bond manager Bill Gross calls it "a haute con
job." Bloomberg News columnist John Wasik describes it as "a testament
to the art of economic spin." More and more shoppers and consumer
simply disbelieve it.

The subject of this scorn is the federal government's vaunted Consumer
Price Index or CPI. Americans are now beginning to understand that
this indicator has its own share of gimmicks not unlike a sub-prime
mortgage or the six pages of fine print that accompanies your credit
card agreement.

Some of these CPI ingredients -- product substitution weightings,
"hedonics" (price reductions for added product quality or
satisfaction), and use of owner's equivalent rent (instead of home
ownership costs) -- have a comic aspect suitable to mockery by Bill
Maher, Stephen Colbert or Jon Stewart. But in a larger sense, they're
not remotely funny. That's because the federal minimalization and
misrepresentation of inflation, pursued statistically over the last 25
years, has been the main buttress of Washington's over-favorable and
self-serving portraiture of the U.S. economy.

Distortions aplenty have followed. Some of the most pernicious include
the shortchanging of federal pension and Social Security obligations
and cost of living increases, a parallel shortchanging of cost-of-
living increases in wage contracts tied to the federal CPI, the
suppression of equitable interest payments on bank accounts and
certificates of deposit, and the camouflaging of weak U.S. economic
growth through inadequate adjustments for inflation. The benefits to
the executive branch in Washington jump out -- huge annual federal
savings on Social Security and pension outlays, as well as on the
amount of interest paid on the federal government's multi-trillion-
dollar debt. Some $250 billion a year could be involved.

If many individuals are losers, many businesses and financial
institutions have been winners. Minimal cost-of-living increases favor
corporations, while low interest rates make money cheaper to the
financial sector. In particular, the gargantuan $10 trillion increase
in financial-sector debt since 1994 could become unmanageable if
mounting inflation forced borrowing costs up to 8% or 9%. And it is
axiomatic regarding equities that when rates rise in the bond market,
that competition usually undercuts stock market values.

In short, there have been three big gainers from understatement of
U.S. inflation: the federal government, wage-paying businesses and the
institutions and markets of the swollen U.S. financial sector. But
skeptics have a weighty counter: Okay, it's easy to understand how
they all might profit from understating inflation. But if the
understatement is patently false, how can they hope to get away with
it?

In fact, the belief by many conservative U.S. economists that
inflation is under control, despite global indications to the contrary
(including soaring commodity and energy prices), has a major
ideological component -- their fidelity to monetarist economic
principles (that only money supply expansion can create inflation) and
to the Efficient Markets Hypothesis (that markets process all
available information, so that if inflation were serious, markets
would have reacted already). As late as January, monetarists on the
Federal Reserve Board, notably Chairman Ben Bernanke and colleague
Frederic Mishkin, believed in the new-version CPI and argued that U.S.
inflationary expectations were safely "anchored."

Financial economists and money managers generally agree. A late April
survey of 120 U.S. institutional money managers by Barron's, the
financial weekly, found that on average, they predicted a CPI
inflation rate of 2.72% in December 2008 and just 2.79% in December
2009. Elsewhere in the world, central bankers and politicians are
worrying about another wave of commodity inflation akin to that in the
1970s, but U.S. money managers take comfort in the Efficient Market
Hypothesis and in the wisdom and sanctity of the CPI.

Critics, by contrast, smell a potential disaster. Oil is up over 80
percent in the last twelve months. The New York Times' consumer
reporter, W.P. Dunleavy, wrote on May 3 that his own groceries now
cost $587 a month, up from $400 a year earlier. That's a 40 percent
increase. Reports in the financial press make frequent reference to
foreign investors who distrust the U.S. dollar because they calculate
true U.S. inflation at 6% to 9% including food and energy.

California economist John Williams, who runs an organization called
Shadow Statistics, contends that if Washington still used the CPI
measurements applied back in the 1970s, inflation would be in the 10
percent range. My own analysis, set out in much more detail in an
article in the May issue of Harper's, comports with that of the
cynical foreign investors.

Therein lies the danger. If the current inflation rate is really 6-9
percent instead of the 2-3 percent claimed by government and most U.S.
money managers, then Washington's official estimates that the economy
still grew at a rate of some 0.6 percent in the first quarter of 2008
become nonsense. Subtracting a 6-9 percent inflation rate from nominal
GDP growth would identify an economy that was deteriorating and
shrinking, not growing. Concerned foreign dollar-holders would become
even more concerned.
[....]

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